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Are you allowed to set up a pension whilst on benefits?

My mate is in a little pickle at the moment. He gets some DLA and due to his disability does not work and therefore gets benefits in the form of income support and housing benefit etc. At the moment he is not spending all his money so is saving all the time say 100quid a month. Now he is near his maximum of 6000quid allowed capital and is of an age 38 where he is thinking about his future. Hence he is wondering if he is allowed to put some money in a pension plan or pay some kind of additional contribution to his NI stamp so that he may receive a little extra in retirement. I told him that doing this might be a waste of time as pension credits and the MIG may make this a pointless exercise.

Maybe my other suggestion of buying antiques, fine wines/whisky and diamonds maybe the only other way of indirectly providing for a pension!!! Why not the people in the city seem to be all at it being paid in diamonds wines etc to minimise their tax bill.

Any tips or ideas appreciated.

Jools

PS Will post this in the benefits section as well but I wanted the "pension angle" from people in here!!
Grocery Challenge 2008
Jan £103.17/£180, Feb £47.06/£120
£10 per day Challenge 2008
Jan 08 £17.64/£140 (Late start and lost the plot!!!)

Comments

  • dunstonh
    dunstonh Posts: 118,572 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I told him that doing this might be a waste of time as pension credits and the MIG may make this a pointless exercise.
    MIG was replaced a number of years ago.

    At age 38, pension credit may not be applicable as it wouldnt take a big contribution to wipe this out. After all, his state retirement age is 67 so he has 29 years of investment. Also, unlike the MIG, pension credits do not penalise so much for making small contributions. It isnt a £1-£1 reduction.
    Maybe my other suggestion of buying antiques, fine wines/whisky and diamonds maybe the only other way of indirectly providing for a pension!!!

    And he has the skills to do this as well as the money to pay for it? If he is close to £6k then he doesnt.
    Why not the people in the city seem to be all at it being paid in diamonds wines etc to minimise their tax bill.

    Do they?
    Any tips or ideas appreciated.

    Its impossible to say with the limited info we have whether pension is the right thing or not. We would need to know what state pensions he would receive (in todays money) and we would need to know what sort of money he is looking to put aside.

    For a moral point of view, I would be disgusted that someone on benefits was able to buy diamonds and build up large lump sums and would view that a gross waste of taxpayers money. That isnt what benefits are for.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • jpe20
    jpe20 Posts: 585 Forumite
    Half agree with the moral point you made though how many people would give back their unused benefit if they were in a similar situation. My view is to try and make some constructive use of the money which may save the taxpayer some money in the long term rather than spend it for the sake of it or doing the "right thing" by wandering back into the benefits office with the unused cash!!

    I dunno the details you need to make a proper assesnent like the NI contributions made and state pension projections etc. I would imagine the state pension would be at the lowest level and topped up by whatever pension credits and other devices to meet the disability needs.
    Grocery Challenge 2008
    Jan £103.17/£180, Feb £47.06/£120
    £10 per day Challenge 2008
    Jan 08 £17.64/£140 (Late start and lost the plot!!!)
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
    10,000 Posts Combo Breaker
    I'm afraid I dont know the answer to your question but it seems to me whole commendable that he wants to use the money to help saveguard his future rather than say spending it on booze and fags.
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